COOK ISLANDS MONEY LAUNDERING AND TERRORIST FINANCING: Financial Institutions and Designated Non-Financial Businesses and Professions Sectors ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
COOK ISLANDS MONEY LAUNDERING
AND TERRORIST FINANCING:
________________________________
Financial Institutions and Designated
Non-Financial Businesses and Professions
Sectors Review of Risk.
Phil Hunkin
October 2017
1|PageFinancial Institutions and Designated Non-Financial
Businesses and Professions Sector Review of Risk
Contents Page
1.0 Foreword 3
2.0 Introduction 4
3.0 Cook Islands ML/TF Risk Assessments 4
4.0 National AML/CFT/PF Strategy for the Cook Islands 6
2|Page1.0 Foreword
It is my privilege to introduce the Cook Islands Money Laundering and Terrorist Financing: Financial
Institutions and Designated Non-Financial Business and Professions Sectors Review of Risk. This report
has been developed to continue the very important risk assessment work that was initiated through
the National Risk Assessment 2015.
The Cook Islands is committed to being a good and responsible international citizen, to do its part in
fighting the laundering of proceeds from criminal activity, regardless of whether they are generated
in or outside the Cook Islands, and to fight against those who wish to harm others through terrorist
activities. While the Cook Islands is remote geographically, in the age of globalisation, the Cook Islands
is not sheltered from serious criminal activity or terrorism or its effects.
Cook Islanders can be victims of such and they can be perpetrators. It is therefore essential that the
country has a system in place to detect, disrupt and prevent money laundering, terrorist financing and
proliferation financing activity in and from the Cook Islands.
Having a robust and effective AML/CFT/PF regime will ensure that the integrity and reputation of the
Cook Islands financial system is upheld. A sound and well regulated financial system is a key
component of meeting the Cook Islands national vision under the Te Kaveinga Nui – National
Sustainable Development Plan 2016 – 2020, in particular:
• Goal 2: Expand economic opportunities, improve economic resilience and productive
employment to ensure decent work for all; and
• Goal 16: Promote a peaceful and just society and practice good governance with
transparency and accountability.
Not only does a strong financial system detect and disrupt proceeds from criminal and terrorist activity
but it has a flow on effect of attracting more legitimate participation in it, both from within and outside
the Cook Islands. This can mean more investment, job creation and economic growth for the country.
This sector review of risk leads to an important component of the evidence base for the response to
money laundering, terrorist financing and proliferation financing over the coming years. The
government is confident that by responding to these risks, and through continued partnership
between government, law enforcement, supervisors and the private sector, we can ensure that the
Cook Islands economy is a hostile environment for illicit finance and an open, attractive destination
for legitimate business.
I would like to thank all the Crown agencies and reporting entities for their assistance and cooperation
with the development of the sector review of risk assessments.
The recent presentations of the report’s findings were very well attended and reflects the importance
the Cook Islands places on identifying, understanding and where necessary taking actions to mitigate
the risks identified.
I look forward to continuing to focus on ML/TF/PF risk going forward in my role as Head of FIU and as
Chairman of the National AML/CFT/PF Co-Ordinating Committee.
Phil Hunkin
Head of FIU and Chairman, National AML/CFT/PF Co-Ordinating Committee
3|Page2.0 Introduction
2.1 The Cooks Islands undertook and published a National Risk Assessment in 2015. The assessment
focussed on the threats, vulnerabilities and risks presented through money laundering, terrorism
financing and the proliferation of weapons of mass destruction. As a consequence of the National Risk
Assessment a number of measures have been deployed by the Cook Islands authorities to mitigate
these risks.
2.2 To assess the benefits of these measures a Cook Islands Money Laundering and Terrorist
Financing – Primary Threats and High Risk Sectors report was commissioned by the Financial
Supervisory Commission, to undertake a risk assessment of these high risk sectors and to report the
findings to the AML/CFT authorities. The report was concluded on 28th July 2017.
2.3 A further report has been commissioned through the FIU to undertake a similar assessment of
sectors not incorporated as part of the Primary Threats and High Risk Sectors review. The review has
been termed the Secondary Threats and Low Risk Sectors. The sectors that provided the focus of this
review are:
Accountants
Lawyers
Pearl Dealers
Motor Vehicle Dealers
Real Estate
Lotto
NPO’s
Aid development funding.
2.4 This report analyses the two reports and takes into account the substantial work undertaken by
the Cook Islands since the NRA 2015 was adopted by Cabinet on 10th March 2015. The report has been
titled Financial Institutions and Designated Non-Financial Businesses and Professions Sector Review
of Risk.
3.0 Cook Islands ML/TF Risk Assessments
3.1 The Cook Islands published its National Risk Assessment on the 10th March 2015, this NRA was
shared with all relevant competent authorities, self-regulatory bodies, financial institutions and
DNFBP’s. This outreach has enabled the Cook Islands to identify, assess and understand the risks
presented through money laundering, terrorist financing and the proliferation of weapons of mass
destruction. The Coordinating Committee of Agencies and Ministries (CCAM) is the government multi
agency body with oversight for coordinating the activity around ML/TF risk. This body changed its
name in January 2016 to the National AML/CFT Coordinating Committee (NACC). The chairman of
NACC is the Head of FIU. The FIU is the leading Cook Islands competent authority with regard to ML
and TF risk.
3.2 The NRA 2015 provided the framework for authorities to assess the risks and to implement
measures that were commensurate to the risks identified. It also provided authorities with
information that enabled them to identify areas where improvements could be made to the AML/CFT
regime. The NRA 2015 assisted authorities in the prioritisation and allocation of resources. Financial
Institutions and DNFBP’s have used the NRA 2015 to assist in their own risk processes.
3.3 The NACC meets at regular intervals throughout the year and meetings are focussed on the
outcomes of the NRA 2015, this high level Committee leads on strategy and policy to ensure that the
appropriate AML/CFT regime is in place. The NACC has met on seven occasions since the beginning of
4|Page2016 and at each of the meetings the NRA 2015 and ongoing risk analysis has been undertaken. This
collaboration between agencies has resulted in the Cook Islands properly identifying and
understanding the money laundering and terrorist financing risks presented nationally and this
domestic coordination has ensured the appropriate actions have been initiated to mitigate these risks.
3.4 The NRA 2015 made fourteen recommendations categorised under five headings; National
Coordination; Transnational Risk Mitigation; National Risk Mitigation; Capacity Development and
Legislative Drafting. These recommendations have been reviewed and acted upon where relevant by
all the key agencies.
3.5 In development of the NRA 2017, it was determined that a targeted assessment of Cook Islands
was the preferred approach. To obtain a better understanding of the nature and extent of the Cook
Islands’ ML/TF risk in the high risk and low risk sectors identified in the NRA 2015. NRA 2017 is a
focussed Risk Assessment looking at National Risks in two specific areas; Financial Institutions and
DNFBP’s. Two separate reports have been commissioned. An external expert Alan Taylor was engaged
by the Financial Supervisory Commission to prepare the “Cook Islands Money Laundering and Terrorist
Financing – Primary Threats and High Risk Sectors” report. 1A second report focussed on the Secondary
Threats and Low Risk Sectors has been developed through the FIU Compliance Team throughout 2017.
This activity is directed by the 2017 -2019 Compliance Strategic plan.
3.6 Taylor’s report highlighted a number of areas where the Cook Islands could mitigate risks identified
further.
Increased STRs, data mining, FIU, Customs and Police investigations and rejections of business
by service providers, may lead to a better awareness and understanding of ML/TF/FOP and
more robust compliance systems to detect, deter and disrupt ML/TF/FOP activity.
CI AML/CFT regime must be continually monitored and regularly reviewed to ensure it is
adequate and appropriate for the ML threats faced by CI at any given time.
CI may consider establishing a clear and definitive AML/CFT strategy lead by a smaller more
focussed NACC;
Training, dissemination of information and communication amongst government agencies
and the private sector is essential to increase awareness and understanding of ML/TF/FOP;
Given the enactment of FTRA 2017, FIU compliance audits can be carefully planned and
structured for maximum effect;
Section 47 FTRA 2017 should result in more STRs being filed providing a better tool and greater
intelligence for FIU to assess the ML/TF/FOP threats to which CI is exposed;
FIU should clarify with all government agencies the type of financial information it should
receive for its further investigation and place a formal structure around such communication
and dissemination;
Restrictions on FIU, through lack of staff, to proactively mine financial transaction data may
mean valuable information is missed. Perhaps this role could be delegated or contracted out
to ensure the best possible opportunity is given to detecting ML/TF/FOP activity;
Reporting institutions’ obligation to risk assess clients and obtain CDD accordingly, needs to
be closely monitored to ensure appropriate CDD is being obtained.
1
Alan is a New Zealand qualified lawyer with 23 years’ experience in the international financial services
industry, 10 of those spent working in the Cook Islands. Alan has held legal, business development and senior
management positions in both public and private organisations. He is currently working for the Cook Islands
Financial Services Development Authority.
5|Page3.7 The FIU report Secondary Threats and Low Risk Sectors complements the Primary Threats and High
Risk Sector Report. The eight sectors identified for the purpose of the FIU review have all been subject
to either a desk based review or Compliance visit assessments, by the FIU. The outcomes of the risk
assessment indicate an increase of risk. This is as a direct result of new legislation introduced in 2017.
In particular the Financial Transactions Reporting Act, 2017 (FTRA 2017) that requires reporting
institutions to manage risks including the development of risk policies. The sectors are generally
required to develop their knowledge and risk based processes to more effectively mitigate the risks
presented. The outcome of this risk assessment will be fed back into the work processes of the FIU
Compliance Team to improve risk mitigation of the sector with the aim of lowering the overall risk.
3.8 The Cook Islands, through the FIU engaged John Chevis a UNODC consultant to review the various
government agencies assessing their vulnerabilities and capacity through their effectiveness in respect
of the AML/CFT regime. The UNODC were in country between the 4th April and 8th April 2016.
3.9 Peter Dench an AML/CFT Financial Sector consultant assisted in the reviewing of the work and
practices undertaken by the FIU and FSC focussing on their effectiveness with respect to IO 3 and IO
5. He also looked at the extent to which technical compliance with the FATF 40 recommendations. As
a part of this process Dench met with all of the banks (four), five trustee companies, three other
financial institutions and one NPO. The objective of these meetings was to assist their preparation for
the new FTRA legislation and the new requirements that would be placed on reporting institutions
this included an analysis and explanations of the risks work that would need to be undertaken.
3.10 At the end of October 2017 senior members of the FSC, FIU and Alan Taylor presented the findings
of the sector specific risk assessments to government authorities, reporting institutions, Designated
Non-financial Business and Professions and NPO’s. The sessions held over three days were well
attended with positive contributions from the floor and interaction. In total there were fifty five
different attendees.
4. National AML/CFT/PF Strategy for the Cook Islands.
4.1 The Cook Islands has developed and published an AML/CFT/PF strategy. This strategy has been
directed and informed by the NRA 2015 and the significant risk based activity that has taken place in
the short period of time since the NRA publication in 2015. All of the risk based activity that has
occurred and outlined earlier in this report has assisted in the production of this strategy.
4.2 This strategy will be adopted by the NACC and will the AML/CFT/PF focus for the period 2017-
2020. This strategy will continue to be informed from ongoing risk assessments and as such is a living
document.
6|PageCOOK ISLANDS MONEY LAUNDERING
AND TERRORIST FINANCING:
________________________________
PRIMARY THREATS AND HIGH RISK
SECTORS
Alan Taylor*
28 July 2017
7|PageCOOK ISLANDS MONEY LAUNDERING AND TERRORIST
FINANCING: PRIMARY THREATS AND HIGH RISK SECTORS
Contents Page
Executive Summary 9
1. Methodology 12
2. The Cook Islands in Context 13
3. The Legal and Regulatory Framework 15
4. Predicate Offences 20
5. Primary Threats 24
6. Indicators of ML Threat 26
7. The High Risk Sectors and Other Areas for Consideration 34
8. Terrorist Financing 46
9. Effectiveness of ML/TF/FOP Measures in Place 48
Annex 1: World Bank GDP Rankings 2015 55
Annex 2: Roles of Government Agencies 56
Annex 3: High Risk Jurisdictions 58
Glossary 59
Acknowledgements 61
8|PageExecutive Summary
Introduction
The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and
promotes policies to protect the global financial system against money laundering, terrorist
financing and the financing of proliferation of weapons of mass destruction. The FATF
Recommendations, as adopted in 2012 (1) (the Recommendations), provide the international
standards on combatting money laundering and the financing of terrorism and proliferation. The
Cook Islands (CI) has committed to the Recommendations through its membership of the Asia/
Pacific Group on Money Laundering (APG), a FATF style regional body.
Recommendation 1 of the Recommendations requires each country to “identify, assess, and
understand the money laundering and terrorist financing risks for the country”. The interpretive
notes to the Recommendations further provide that “countries should keep the assessments up-to-
date, and should have mechanisms to provide appropriate information on the results to all relevant
competent authorities and self-regulatory bodies, financial institutions and designated non-financial
bodies and professions.” (DNFBPs) (2)
CI has to date sought to meet that obligation by producing the “Money Laundering Risk Analysis for
the Cook Islands” in 2008 (NRA 2008) (3.), followed by the “National Risk Assessment 2015: Money
Laundering and Financing of Terrorism in the Cook Islands” (NRA 2015). (4)
The next CI national risk assessment, providing a comprehensive analyses and assessment of the
money laundering/terrorist financing/financing of proliferation (ML/TF/FOP) risks to which the CI is
potentially exposed, is scheduled to be completed by 31 October 2017 (NRA 2017). However, in
anticipation of the APG undertaking a Mutual Evaluation of CI’s anti-money laundering and
countering the financing of terrorism (AML/CFT) (5) regime in November this year, the Cook Islands
Financial Supervisory Commission (FSC) has requested that a targeted risk assessment be carried out
focussing on the primary ML/TF/FOP threats to CI and the sectors within CI most vulnerable to those
threats.
This Report seeks to provide that assessment by identifying:
- the main ML/TF/FOP threat to the CI and from where that threat originates;
- the sectors/industries/businesses within CI at most risk from that threat;
- how those sectors/industries/businesses are most vulnerable to that threat;
- the impact such threat may have on CI and its economy;
- the measures in place to counter that threat.
Following the identification process a deeper understanding of the most immediate ML/TF/FOP risks
should be available to then assess the effectiveness of the measures in place to counter those risks
and any further measures that CI should consider to manage and mitigate the risks identified.
This Report picks up on the conclusions of NRA 2015, in terms of high risk
sectors/industries/businesses, and provides further analyses and update in the context of the
current CI AML/CFT environment. It seeks to identify any additional or related ML/TF/FOP risks that
may currently exist across those sectors/industries/businesses and any particular activity or
operation within each which potentially exposes CI to a higher degree of risk than currently
understood or anticipated.
Whilst this Report focusses on the primary ML/TF/FOP threat to CI and where CI is most vulnerable
to that threat, references are also made to those sectors/industries/businesses not necessarily
regarded as high risk but where some exposure to that threat exists. It is acknowledged that where a
9|Pagesector/industry/business may be regarded as having low or medium ML/TF/FOP risk, that does not
mean no risk, but for the purposes of this Report the risk is not regarded as sufficiently high to
warrant further analyses. It is expected that those sectors and industries will be analysed in full as
part of NRA 2017.
Key Findings
By most measures CI is regarded as a very small country. When defined by way of its population,
domestic economy, GDP, trade levels, international fund flows, financial services industry etc. it
appears fairly insignificant on a global scale and unnoticed by many. Evidence would suggest that
ML/TF/FOP, and the criminality that leads to it, do not present a significant risk to CI at this time. The
lack of size and complexity of CI financial sector, including trust and company service providers
(TCSPs), may mean that it is less exposed to criminality than financial sectors in other countries.
Notwithstanding this, CI must be vigilant and proactive in the face of international criminals and
terrorists who may look to exploit it due to its lack of size which may be perceived as a lack of
awareness, understanding and sophistication in detecting criminal activity.
The primary ML/TF/FOP threat to CI comes from international sources. Financial crimes are not the
most prevalent amongst domestic predicate offences and the proceeds of domestic crime are not
significant. The sectors/industries/businesses at most risk from the primary threat are those that
have exposure through international customers seeking to use CI banking system and service
providers to receive, hold and transfer the proceeds of crime, or assist in the commission of a crime
which may generate proceeds. In the CI context, those at most risk are financial institutions and
TCSPs, given the nature of their business and lack of face to face meetings with customers. Given
that up to 90% of TCSP business is from US high net worth individuals and the sole CI private bank
receives and sends more funds to US than anywhere else, it is reasonable to suggest that this is the
primary source of the primary threat. Other ML indicators such as suspicious transaction reports
(STRs) and foreign requests to government agencies for information, also reflect this.
A clear and succinct national AML/CFT strategy document would be beneficial, setting out, inter alia:
- what ML/TF/FOP is and where CI is exposed;
- CI objectives regarding ML/TF/FOP;
- the CI AML/CFT regime in place, including the groups, agencies, committees etc. involved
and their roles and responsibilities;
- how the regime is being/will be used to combat ML/TF/FOP;
- policies both in place and to be implemented.
A smaller more focussed National AML/CFT Co-ordinating Committee (NACC), being the body
responsible for formulating and developing AML/CFT policies, may prove to be more effective in
addressing ML/TF/FOP issues and establishing, implementing, developing and revising policy. Private
sector, and in particular financial institutions and TSCPs, should be considered as members.
Collaboration between government and the private sector will help achieve better understanding
and acceptance of what is in CI’s best interests in regards to combatting ML/TF/FOP.
Training programmes are required (and are currently being planned by FSC/FIU) for all those who
have a role to play within the AML/CFT regime to improve their knowledge and understanding of
ML/TF/FOP and their obligations within the regime. Those who must comply with the Financial
Transactions Reporting Act 2017 (FTRA 2017) will require immediate assistance. In addition,
members of Parliament should be included in such training programmes to assist in their
understanding of the AML/CFT regime and laws they are asked to debate and pass.
The Financial Intelligence Unit (FIU) is responsible for receiving and analysing all financial
intelligence. The analysis of such information is paramount to investigations and for detecting
10 | P a g eML/TF/FOP threats and methods. Due to resource constraints, it is unlikely this information and data
is being thoroughly scrutinised for evidence of ML/TF/FOP activity meaning some activity may go
undetected. The Police has also expressed its concern at the lack of resources to investigate ML.
CI has recently enacted FTRA 2017, and updated other ML/TF/FOP related laws, to bring CI AML/CFT
regime in line with current FATF standards. FIU has the opportunity to devise a robust and well-
structured audit programme to test compliance with all aspects of FTRA 2017.
TCSPs risk of being associated with ML/TF/FOP and other criminal activity is increased where TCSPs
do not have control over the assets, business or other activities of entities owned by a trust to which
they provide the trustee. This may be the case where the customer does not want the TCSP to be
involved in the management of the entity or it may be the TSCP does not want to be exposed to
potential liability arising from holding a management position. TCSPs will be at most risk where they
carry out limited or no due diligence on the entity’s management or its business activities and assets.
Whilst CI financial system may not be at direct risk, its reputation would.
There appears to be good co-operation with foreign authorities requesting information. Also, the
relationship between government agencies seems good when sharing information. However, it is
not clear if all relevant information is being shared with FIU in a consistent manner. To enhance this
sharing of information, the roles and responsibilities of each government agency, particularly those
that receive intelligence, investigate crimes and enforce the law, could be documented putting a
formal structure around the communication and dissemination of information. This could also
include the recording and sharing of informal information requests from foreign authorities by
government agencies to ensure they are appropriately dealt with.
The number of instances of undeclared cash being discovered at the border appears low. A
contributing factor to this maybe the lack of any real means of detecting cash other than third party
information. The number of STRs filed pursuant to the predecessor to FTRA 2017, being the Financial
Transactions Reporting Act 2004 (FTRA 2004), is also relatively small. The suspicious transaction
reporting requirement under FTRA 2017 may generate increased filing which in turn will provide
valuable information for detecting ML methods and activity.
CI must understand where it is most at risk from ML/TF/FOP threats, where vulnerabilities exist and
how they may be exploited. With understanding comes the ability to better identify those threats
and vulnerabilities and act appropriately within the CI context to combat them through a concerted
national effort to detect, disrupt, deter and mitigate ML/TF/FOP risks.
__________________________________________________________________________________
1. http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf)
2. Ibid at note A.3 page 32
3. Produced by Mr John Walker, Associate Professor, Wollongong University, Australia
4. Produced by the Cook Islands Financial Intelligence Unit together with the key Crown agencies of the Co-Ordinating
Committee on Money Laundering and Terrorist Financing
5. The use of the acronym “AML/CFT” in this Report includes the combatting of proliferation of weapons of mass destruction
11 | P a g e1. Methodology
The methodology commonly followed when undertaking a national risk assessment is to collate and
analyse relevant information from government agencies and all participants within each relevant
sector of the private sector, to obtain a clear understanding of all the ML/TF/FOP risks that a country
may be exposed to and where the country may be vulnerable to those risks. Upon identifying the
risks, an evaluation is made of the relative exposure of a sector/industry/business activity to those
risks. Various models are used in the evaluation process.
This Report is however a focussed report, focussed on the primary ML/TF/FOP threats to CI and
those sectors/industries/businesses within CI that are at the most risk of being exploited by those
threats.
In order to initially identify and confirm the primary ML/TF/FOP threats to CI and the sectors at most
risk from those threats, the following was carried out:
- review of NRA 2008 and NRA 2015 and the evaluations and conclusions reached;
- review of the 2015 Cook Islands Typologies Report (1) (2015 Typologies Report);
- analyses of information and data obtained by FIU from key government agencies (available
at the time of writing this Report) including information collected as part of the NRA 2017
information gathering exercise;
- analyses of information and data obtained by FIU from the private sector (available at the
time of writing this Report) including information collected as part of the NRA 2017
information gathering exercise;
- discussions with key personnel in FSC and FIU;
- discussions with private sector stakeholders, in particular senior management involved in
the banking and TCSP industries.
As a result, the identification of the primary threats and high risk sectors, as well as the conclusions
to this Report, draws on the previous CI NRAs as well as the knowledge and experience of those
within the FSC and FIU and senior management within the banking and TCSPs industries. The views
of other members of the community with deep knowledge and experience of the CI, its economy,
business and trade operations were also considered.
The approach taken by other countries in producing NRAs, as well as NRA models developed by the
World Bank and International Monetary Fund, have been considered in the preparation of this
Report. However, due to the specialised nature of this Report together with the particular
circumstances and features of CI, they were used as general guidance only. Guidance was also
provided by APG (2) and the United Nations Office on Drugs and Crime (UNODC) (3) representatives in
terms of framework and approach to the preparation of this Report.
Therefore, with the assistance of the resources and expertise mentioned, the primary ML/TF/FOP
threats to CI were confirmed and the business activities at most risk of being exploited were
identified. Those threats and business activities will be examined later in this Report.
__________________________________________________________________________________
1. Cook Islands Typologies Report 2015: Trends, Typologies and Case Studies, issued 23 June 2016
2. Michelle Harwood, Executive Officer, APG Secretariat
3. John Chevis UNODC Adviser (Anti-Money Laundering and Counter Financing of Terrorism) for the Pacific
12 | P a g e2. The Cook Islands in Context
CI is comprised of 15 islands situated at the heart of the South Pacific, northeast of New Zealand and
south of Hawaii, covering approximately 2 million square kilometres of the Pacific Ocean. Seemingly
remote, it is however very accessible by air, sea and through modern technology.
Government
CI is a self-governing nation with its own written constitution. It is a sovereign state in free
association with New Zealand. It has a Westminster styled parliamentary system with democratic
elections every five years. The political parties are each relatively centrist without interference from
extreme political ideologies or religious beliefs or military threat. The Prime Minister is the Head of
Government with the Head of State, being Her Majesty Queen Elizabeth II by her appointed
representative in CI, the Queen’s Representative. Legislative power is with CI Parliament (elected
members of Parliament) whilst executive power is exercised by CI government (Cabinet ministers)
and the Queen’s Representative.
CI legal system is founded on English common law. The judiciary is independent of the executive and
the legislature. It is comprised of a hierarchy of courts being a High Court and Court of Appeal with
the ultimate appellate court being the Privy Council in London sitting in right of CI. CI’s High Court
and Court of Appeal judges are experienced New Zealand judges who provide independence. They
apply CI law and have jurisdiction over all criminal and civil matters.
Domestic economy
The resident population of CI is estimated at 11,700, (1) about three-quarters of whom live on the
island of Rarotonga being the main centre of trade and business activity.
Notwithstanding the economic disadvantages associated with its small size, geographical location,
lack of diversity of natural resources and manufacturing capability, CI has built an economy focussed
on industries such as tourism, fishing and a financial services industry with albeit a limited range of
services and products.
CI is heavily reliant upon imports, in particular from New Zealand, for goods that cannot be sourced
locally, including foodstuffs such as meat, fruit, vegetables, dry and canned goods, as well as
clothing, household goods, building materials, machinery and vehicles for commercial and personal
use. CI does not manufacture or produce any goods of sufficient quantity to have any more than a
nominal impact on export markets and therefore the domestic economy. Trade deficits are
supported by foreign aid, primarily from New Zealand.
CI GDP for 2015 was NZ$314 million (approx. US$209 million at current exchange rates) (2) extremely
small in comparison to other countries, whether they be Pacific island neighbours, competitors for
international financial services business or FATF member jurisdictions. See Annex 1: World Bank
GDP Rankings 2015
The amount of funds coming into CI banking system from international sources is not significant in
the international context or when compared to neighbouring Pacific countries and those with whom
CI competes for financial services business. The net foreign assets held in the CI banking system as at
31 March 2017 was NZ$136.1 million. (3) CI is not regarded as an international or even regional
finance centre.
To illustrate to what extent a developed financial service industry can be exposed to the rest of the
world, and to provide a comparison (albeit an extreme one) to CI, “the UK is the world’s leading
exporter of financial services with a trade surplus of (US)$71 billion in 2013. The UK accounted for
41% of global foreign exchange trading in April 2013…..The UK is the single most internationally
focused financial marketplace in the world.” (4) It is estimated that somewhere between GBP23-57
13 | P a g ebillion is laundered within and through the United Kingdom (UK) each year. (5) The UK’s status as one
of the largest global financial centres makes it extremely vulnerable to global ML threats. Although
not conclusive, or reason to be complacent, CI’s status as one of the world’s smallest economies and
financial centres, would suggest that in comparative terms its vulnerability to global ML threats
would be low.
International relations and co-operation
CI is a sovereign nation in free association with New Zealand and responsible for conducting its own
foreign affairs. In 1992 the United Nations (UN) recognised CI’s right to establish diplomatic relations
with other countries. (6) Since then CI has been allowed to attend UN sponsored conferences open to
"all States" as well as sign and ratify UN treaties open to "non-member states".
In the context of international financial regulation and the sharing of financial information with
international authorities, CI has:
- signed and ratified the Convention on Mutual Administrative Assistance in Tax Matters,
being the most powerful and comprehensive multilateral instrument available for all forms
of tax cooperation including automatic exchange of information;
- signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial
Account Information in order to automatically exchange information pursuant to the
Organisation for Economic Co-Operation and Development’s (OECD) common reporting
standard (CRS);
- entered into 33 (7) bi-lateral tax information exchange agreements (TIEAs) to promote
international co-operation in tax matters through the exchange of information.
FSC has entered into the Multilateral Memorandum of Understanding between members of the
Group of International Financial Centre Supervisors (GIFCS). GIFCS has 19 members from across the
globe who have agreed to co-operate, consult and exchange information to assist in the carrying out
of their supervisory and regulatory functions.
In addition, CI financial institutions have commenced providing financial information to the United
States Internal Revenue Service (IRS) pursuant to the United States Foreign Account Tax Compliance
Act (FATCA) in relation to all bank accounts held in CI by US persons.
CI is a member of OECD’s Global Forum on Transparency and Exchange of Information for Tax
Purposes (Global Forum). CI’s phase 2 peer review (8) (published in March 2015) judged CI to be
“largely compliant”. Phase 2 peer reviews check that a jurisdiction is actually following the tax
transparency practices set out in its legislative framework and in international agreements for
exchange of information on request.
In 2009 CI underwent a mutual evaluation on AML/CFT carried out by APG to determine compliance
with the FATF’s Recommendations in place at that time. CI’s 2nd Round report was published in July
2009 and showed CI to be in the top 20% of countries in the world for implementing international
regulatory AML/CFT standards.
_________________________________________________________________________________
1. The CI Statistics Office, Vital Statistics and Population Estimates September 2016
http://www.mfem.gov.ck/statistics/social-statistics/vital-stats-pop-est
2. Information provided by Cook Islands Ministry of Finance and Economic Management, Statistics office
3. Cook Islands Statistics Office, Statistical Bulletin, Banking Statistics March Quarter 2017.
4. UK National Risk Assessment of Money Laundering and Terrorist Financing, published October 2015, at page 85, para 10.4
5. ibid at para 10.6
6. Repertory of Practice of United Nations Organs Supplement No. Volume VI Article 102
7. Information provided by RMD on 24.05.17
8. http://eoi-tax.org/jurisdictions/CK#latest
14 | P a g e3. The Legal and Regulatory Framework
The following is an outline of the legal and regulatory framework currently governing the AML/CFT
regime in CI.
Strategy and Policy
NACC is responsible for formulating and developing CI AML/CFT policies as well as ensuring the
institutional framework for AML/CFT covers all relevant areas of the CI economy. The Head of FIU is
the Chair of NACC. NACC is made up of one member from each of the following key government
agencies:
FIU; CI Police Service (Police); Crown Law Office (CLO); Revenue Management Division (RMD); FSC;
Ministry of Foreign Affairs and Immigration (MFAI); Ministry of Justice (MOJ); Business Trade and
Investment Board (BTIB); The Cook Islands Expenditure and Review Committee and Audit Office
(Audit); Ministry of Marine Resources (MMR), CI Customs Service (Customs).
AML/CFT/FOP Legislation
CI has, as at 23 June 2017, updated various statutes contained in its suite of AML/CFT related
legislation to bring them in to line with the Recommendations, as revised and adopted in 2012.
a. For detection, prevention and enforcement
Financial Transactions Reporting Act 2004 (FTRA 2004) was repealed and replaced by FTRA 2017 on
23 June 2017. FTRA 2004 provided that it was “an Act to facilitate the prevention, detection,
investigation and prosecution of money laundering, financing of terrorism and other serious
offences and the enforcement of the Proceeds of Crime Act 2003”. FTRA 2004 established FIU and
introduced customer due diligence, transaction monitoring and suspicious transaction reporting
requirements for all “reporting institutions”. “Reporting institutions” amounted to any person or
entity who carried out an activity (as specified in section 2 of FTRA 2004) on behalf of a customer.
Those activities endeavoured to capture the provision of any service involved in the transfer, receipt,
holding, investment or management of any asset, liquid or otherwise. FTRA 2004 was administered
by FIU.
Financial Transactions Reporting Act 2017 (FTRA 2017) repealed and replaced FTRA 2004 on 23
June 2017. FTRA 2017 is designed to bring CI up to the standard required by the Recommendations,
as revised in 2012, in regards to the detection, prevention, investigation and prosecution of
ML/TF/FOP activity. Following the enactment of FTRA 2017, CI AML/CFT regime will move to a risk
based approach whereby assessments of ML/TF/FOP risk will be carried out by each “reporting
institution” (1) on its business, customers and products and services, in addition to assessments
already being carried out by government at a national level. Reporting institutions will be able to
apply appropriate (simple, standard or enhanced) customer due diligence (CDD) requirements based
on the perceived risk. Also the scope for filing STRs has been widened. A reporting institution will be
required to report any activity that it has reasonable grounds to suspect is suspicious activity.
Financial Transactions Reporting Act 2017 Regulations (the Regulations). The Regulations were
promulgated on 18 July 2017. The Regulations include:
- the types of activity, being “specified activity” as prescribed in Regulation 4, that businesses
must undertake to be considered reporting institutions;
- the types of identification to be obtained for CDD purposes; and
- qualification criteria for money laundering reporting officers.
15 | P a g eCrimes Act 1969 (CA) is the CI criminal code and contains the majority of the predicate offences to
ML/TF/FOP. It was amended in 2003 by the Crimes Amendment Act 2003 to introduce the criminal
offence of money laundering which was itself amended in 2004. (2) The offence of money laundering
is set out in section 280A (2) CA. (3) Predicate offences to money laundering are “serious offences” (4)
being any act or omission that constitutes an offence against CI law punishable by a prison term of
not less than 12 months or a fine of more than NZ$5,000. Any offence against the law of another
country that would constitute a “serious offence” if carried out in CI will also be a predicate offence.
CA is administered by MOJ.
Countering Terrorism and the Proliferation of Weapons of Mass Destruction Act 2017 (CTPWMDA)
(previously called Terrorism Suppression Act 2004 (TSA)). TSA was amended on 23 June 2017 by the
Terrorism Suppression Amendment Act 2017 (TSA Amendment). The name of the statute was
amended to better reflect its content following amendment. TSA was not repealed and replaced.
TSA Amendment implemented laws required to meet the FATF standards on countering the
financing of terrorism and unlawful proliferation. CTPWMDA provides for the suppression of
terrorism by prohibiting people in CI from dealing with terrorist property or participating in terrorist
activities. It establishes the regulatory framework for implementation of UN resolutions and
conventions dealing with terrorism and terrorist financing. The objects of CTPWMDA have been
extended by TSA Amendment to the countering of unlawful proliferation of weapons of mass
destruction in addition to terrorism and terrorist financing. TSA Amendment adds further offences
concerning terrorist activity and includes a number of offences concerning proliferation. CTPWMDA
is administered by CLO.
Proceeds of Crime Act 2003 (PoCA) provides the legal framework for dealing with the proceeds of
crime, including the seizure, restraint and forfeiture of such proceeds (domestic and foreign). It
provides for investigatory orders such as search warrants and production and monitoring orders. It
establishes a conviction based confiscation system. PoCA was amended on 23 June 2017 by the
Proceeds of Crime Amendment Bill 2017 (PoCA Amendment). PoCA Amendment clarifies the
definitions of “tainted property” and “proceeds”. “Tainted property” now means the proceeds of
any offence, not just the proceeds of a serious offence, as well as property used or intended to be
used in or in connection with the commission of a serious offence. PoCA is administered by CLO.
Currency Declaration Act 2016 (CDA) provides for the oversight of the cross-border movement of
currency and enables the seizure, detention or forfeiture of currency that is undeclared, or the
proceeds of financial misconduct or unlawful activity. CDA provides Customs, FIU and Police with
powers to question, search and seize in relation to cross border currency matters as well as detain
such currency. CDA is administered by the FIU.
Customs Revenue and Border Protection Act 2012 (CRBPA) provides the legal framework for
Customs and sets out its powers and authority. Customs is responsible for ensuring border security.
It has powers to question individuals and obtain information, search for prohibited goods,
investigate and prosecute (through RMD) illegal activity. Such activity primarily involves prohibited
goods including drugs, firearms, cash in excess of thresholds and goods smuggled to avoid duties and
levies. CRBPA is administered by RMD.
Income Tax Act 1997 (ITAXA) ITAXA provides the legal framework for charging and collecting income
tax in CI and proceedings for offences against ITAXA. It sets out the powers of the Collector of Inland
Revenue to obtain information for taxation purposes, both domestic and foreign. ITAXA is
administered RMD.
16 | P a g eb. Law enforcement agencies
The main CI law enforcement agencies are FIU, Police, Customs, RMD and CLO. Relevant legislation
in addition to that noted in a. above includes:
Financial Intelligence Unit Act 2015 (FIUA) sets out the functions, duties and powers of FIU. FIU
regulates and supervises “reporting institutions” (see definition at section 5 FTRA 2017) in respect of
compliance with the oversight Acts being: FTRA 2017; POCA; Mutual Assistance in Criminal Matters
Act 2003 (MACMA) and, since June 23 2017, CTPWMDA as amended by TSA Amendment. FIUA
empowers the FIU to investigate any suspected financial misconduct that comes to its attention.
“Financial misconduct” is defined in section 4 FIUA and includes ML/TF/FOP, fraud involving cross
border financial transactions, financing of proliferation of weapons of mass destruction, financing or
facilitating of bribery or any form of corruption, tax evasion whether or not relating to taxes payable
in CI and any breach of an oversight Act. FIUA is administered by FSC.
Police Act 2102 (PA) PA provides for the governance and administration of Police including its
functions, duties and powers.
c. Supervision
Financial Supervisory Commission Act 2003 (FSCA) sets out the functions, duties and powers of FSC.
FSC is the prudential regulator and supervisor of licensed financial institutions and has broad powers
under the FSCA to undertake on-site compliance visits and obtain information. FSC provides a
supporting role to the FIU in AML/CFT supervision. FSCA is administered by FSC.
d. International co-operation
Mutual Assistance in Criminal Matters Act 2003 (MACMA) provides the legal framework within
which CI provides or requests assistance in criminal matters to or from foreign countries. Such
assistance will usually involve the provision of evidence and production, search and seizure of assets.
MACMA was amended by the Mutual Assistance in Criminal Matters Amendment Act 2017 (MACMA
Amendment) enacted on 23 June 2017. Any investigation or proceedings commenced in CI or
overseas in regards to forfeiture or restraint of property, must be treated as criminal in nature
where the investigation or proceedings involve tainted property. MACMA is administered by CLO.
Extradition Act 2003 (EA) sets out the framework for CI making and receiving extradition requests of
and from other countries in relation to persons accused or convicted of extradition offences. EA is
administered by Police.
Administration and Enforcement
The main CI law enforcement agencies are FIU, Police, Customs, RMD and CLO with Police being the
lead agency for the investigation and prosecution of all criminal conduct in CI, including ML/TF/FOP
and relevant predicate offences.
Each of the government agencies within NACC has a role within the CI AML/CFT regime, whether it
be in the administration, supervision, communication or enforcement of AML/CFT laws, rules,
regulations and policies. See Annex 2: Roles of Government Agencies.
In regards to the administration and enforcement of AML/CFT matters:
17 | P a g eFIU has responsibility pursuant to FIUA to administer and enforce those statutes concerning financial
misconduct. It receives, requests and analyses financial intelligence and provides the same to Police
for further investigation in relation to any financial misconduct. Supervision of AML/CFT compliance
by reporting institutions is a function and duty of the FIU.
Police is the lead law enforcement agency for the investigation and prosecution of all criminal
conduct in CI including ML/TF/FOP offences, and relevant predicate offences. Police and FIU work
together on ML/TF/FOP investigations. The Criminal Investigation Branch of the Police is the
specialised group with responsibility for the investigation of all serious crimes, including drug related
and financial crimes, ML/TF/FOP and proceeds of crime investigations.
CLO assists Police in the prosecution of ML/TF/FOP offences (and relevant predicate offences) and
submits applications for orders under PoCA. CLO provides advice to all law enforcement agencies on
prosecutions. It represents law enforcement agencies in Court and is responsible for administering
mutual legal assistance requests and proceeds of crime matters. CLO is also responsible for the
review and management of all legislation for Parliament and Executive Council.
RMD is a division of the Ministry of Finance and Economic Management (MFEM) and is responsible
for the administration and enforcement of taxation and customs laws.
Other relevant committees within the Cl AML/CFT regime are:
Cook Islands National Intelligence Taskforce (CINIT) is an intelligence sharing body comprised of
Police, FIU, Customs and Immigration (a division in MFAI). CINIT’s main focus is criminal
investigations but also includes investigations by other government agencies on a case by case basis;
Cook Islands Combined Law Agency Group (CLAG) is the coordinating committee for joint law
enforcement operations in CI;
Cook Islands Anti-Corruption Committee (ACC) is the coordinating committee for anti-corruption
strategies and policies in CI. The ACC does not have an investigative function but instead relies on its
members to coordinate their efforts to address corruption cases in CI. The Head of FIU is the Chair of
ACC. ACC members are FIU, Police, Audit, CLO, Office of the Ombudsman and MFEM.
The terms of reference for NACC, CINIT, CLAG and ACC were not viewed in the preparation of this
Report. It is assumed that there are distinct lines of communication between each of these groups
and a common understanding of their roles and responsibilities for each to be effective.
Based on information obtained and reviewed, it would appear beneficial to all stakeholders if a clear
and succinct national AML/CFT strategy document was produced setting out, inter alia:
- CI objectives regarding ML/TF and proliferation of weapons of mass destruction;
- what is ML/TF and proliferation;
- the CI AML/CFT regime in place, including the groups, agencies etc. involved and their roles
and responsibilities;
- how the regime is being/will be used to combat ML/TF/FOP;
- the policies in place and how they are implemented.
It would seem appropriate that such a strategy document be issued by NACC. A smaller more
focussed NACC may be more effective in addressing and targeting ML/TF/FOP issues and
establishing, implementing, developing and revising policy. Contributions from the private sector
and in particular the financial services industry, including TCSPs, may also be useful in gaining a
better understanding of ML/TF/FOP threats and establishing relevant and meaningful policy.
18 | P a g eSummary
A general AML/CFT framework to combat potential ML/TF/FOP risks is in place. The effectiveness of
CI AML/CFT strategy, legislation, regulation, supervision, co-operation (domestically and
internationally), administration and enforcement will be considered later in this Report. Recent
legislative amendments are designed to strengthen the regime and bring ML/TF/FOP laws in line
with the Recommendations. Those laws will need to be tested to determine effectiveness as well as
suitability to deal with the ML/TF/FOP risks.
_________________________________________________________________________________
1. Section 5 FTRA 2017 definition of “reporting institution”
2. Crimes Amendment Act 2004
3. Section 280 (2) “A person commits the offence of money-laundering if the person –
(a) acquires, possesses or uses property, or engages in a transaction that involves property, knowing or having reason to believe
that it is derived directly or indirectly from a serious offence;
(b) converts or transfers property with the aim of-
(i) concealing or disguising the illicit origin of that property; or
(ii) aiding any person involved in the commission of the offence, to evade the legal consequences thereof,
knowing or having reason to believe that the property is derived directly or indirectly from a serious offence;
(c) conceals or disguises the true nature, origin, location, disposition, movement or ownership of the property knowing or having
reason to believe that it is derived directly or indirectly from a serious offence;
(d) renders assistance to another person for any of the above.”
4. ML definition contained in section 280A (1) CA
19 | P a g e4. Predicate Offences
The Crimes Amendment Act 2003 criminalised ML by the introduction of section 280A (2) CA.
Section 280A was repealed and replaced by Crimes Amendment Act 2004. Under CI law a person will
be guilty of a ML offence if that person knowingly deals with property derived from a “serious
offence” or deals with property and is wilfully blind to the fact that it is derived from a “serious
offence”. (1)
A “serious offence” (i.e. a predicate offence to ML) is any act or omission that constitutes an offence
against CI law punishable by a prison term of not less than 12 months or a fine of more than
NZ$5,000. An offence against the law of another country that would constitute a “serious offence” if
carried out in CI is also a predicate offence.
CI does not therefore have all crimes legislation for the prosecution of ML/TF/FOP, as a number of
jurisdictions do, but the thresholds for “serious offences” are relatively low.
CI has a wide range of predicate offences from which a ML/TF/FOP charge can arise, a significant
number of which are contained in CA, as amended. Predicate offences do, however, also exist in
legislation such as:
Transport Act 1966;
Narcotics Act 1965;
Income Tax Act 1997.
It is noted that any person may be convicted of the offence of ML notwithstanding the absence of a
conviction in respect of a predicate offence which generated the proceeds alleged to have been
laundered. (2)
Table 1. Domestic predicate offences reported to Police (3)
Predicate Offences 2014 2015 2016
Fraud 10 14 9
Theft 232 265 222
Burglary 229 161 115
Corruption/bribery - 1 2
Drug offences 12 10 8
Note that that domestic tax evasion offences are dealt with by RMD and noted below.
Most CI domestic crime involves burglary and theft. Financial crimes do exist but the occurrences of
those reported and prosecuted are relatively small as are the proceeds generated. Proceeds
generated from domestic predicate crimes are considered to be for personal use or life style
satisfaction. CI has a relatively large cash based economy. Many local businesses, shops and outlets
operate on a cash only basis. This would indicate the possibility of co-mingling to transfer the
proceeds of any domestic crime into the financial system.
To date there have been no prosecutions under or convictions of the ML offences (s280A (2), (3) CA)
and only one application under PoCA to seize and confiscate the proceeds of a domestic predicate
offence. This is in part due to the value of proceeds generated by domestic predicate offending
being relatively low. Also, Police may consider the penalty for conviction of the predicate offence as
being sufficient punishment, and to investigate further would not be an efficient use of resources. It
20 | P a g eis noted also that reparation orders to compensate victims can be sought at sentencing for the
predicate offence which may make proceedings under PoCA somewhat redundant from a local law
enforcement perspective.
Notwithstanding this, in 2016 a former Member of Parliament and Minister of Marine Resources was
imprisoned for 6 months after being convicted of corruption. (4) This was the first time a serving
Minister of the Crown had been imprisoned for corruption. It was decided that the former Minister
(who was Minister of Marine Resources at the time the crime occurred) used his position as Minister
to obtain financing for a personal business venture in consideration for granting fishing licences to a
Chinese company. The amount of the loan was NZ$250,000. In May this year CI Solicitor General
made application to CI High Court under PoCA to seize the assets of a company owned by the former
Minister or obtain a pecuniary penalty against the former Minister for the benefits he derived. This
is the first time an application has been made in CI under PoCA.
Domestically the number of prosecutions and convictions of individuals who have taken part in ML
of illicit proceeds from abroad is zero. There were no cases of ML reported to the Police during the
period 2014 to 2016.
It is understood that none of the financial crimes committed in the period 2014 to 2016 involved a
financial institution, TCSP, law firm, or any employee thereof in the course of their employment, or
other CI professional advisor.
As at the end of 2016 the Police had received no foreign reports or requests in regards to organised
crime or organised crime groups operating in CI. Similarly, there is no evidence of terrorist financing,
terrorist acts or terrorist groups operating in CI.
There were no confirmed cases of illicit trafficking of arms, drugs or stolen goods in to or out of CI in
the period 2014 to 2016.
Each of the drug offences reported within the period 2014 to 2016 was in relation to domestic cases
of possession and use of marijuana and related utensils. However, the Police has noted that whilst
the level and nature of drug activity and offences in CI are not high, “the disruption of illicit drugs
trafficking is assessed as a one of the highest priority transnational crime challenges for the Pacific
due to various source countries, transhipment routes, importation and production methodologies
and transnational crime syndicates operating in the Pacific. The Pacific region will continue to be
targeted as transhipment points for consignments of illicit drugs from South America and Asia,
driven by demand within the lucrative Australian and New Zealand markets.”. (5) Police and Customs
therefore remain vigilant to this potential threat despite apparently not yet having been exposed to
it.
Domestic Tax Evasion
Between 2014 and 2016, a total of 29 cases of tax evasion were investigated by RMD, 15 of which
were prosecuted. A total of 14 enforcement actions were undertaken during the same period with
27 warning letters issued and 21 flight bans issued to prevent taxpayers absconding overseas
without paying their tax. In 2014, 2015 and 2016 the total sums of $648,709.00, $811,220.00 and
770,447.36 respectively were recorded as proceeds from tax evasion. (6)
21 | P a g eYou can also read
